TT-943 (Tourist Edition) -- The Coming Tax Grab on Tourism

* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie
Lloyd, a long-term technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, May 06, 2018, Issue No. 943

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+++ The Coming Tax Grab on Tourism

Two events over the last couple of months show that the government will
probably become its own biggest threat to the continuation of the
Inbound travel boom. Firstly there is its abdication of authority over
the Minpaku (Airbnb) law, handing over the final say on regulations to
petty-minded local governments who never really liked the flood of
foreign tourists anyway. If the national government had really wanted
Minpaku to succeed in Japan, it would have legislated in a way that
prevented local ordinance overrides. So as a result I predict that from
next month Airbnb's inventory in Japan will fall from 60,000 or so
locations to about 1/3 of that amount. This will drive up hotel room
prices (already 50% higher than 2 years ago), and return Japan to the
ranking of being one of the most expensive destinations in the world.

Secondly, there is last week's approval in the Diet of the JPY1,000
Departure Tax on every traveler leaving the country, Japanese or
foreign. Although the amount seems modest compared to some other
countries like Australia (AUD60 Passenger Movement Charge - PMC), the
move to tax travelers is a direct grab for tourist cash that, much like
consumption tax, will be hard to resist increasing in the future. Just
like consumption tax, it will become an addiction and be so pervasive
that it will be impossible to stop. Worse, the money will likely not be
used for tourism at all, but rather wind up being funneled to companies
and organizations that have little to do with tourism today - such as
IT, manufacturing, and of course construction.

Details of the new tax are still to be decided by the transport
ministry, but travelers can expect to be paying before the Rugby World
Cup (next September), and possibly as early as next January (2019).

So, why care about the Departure Tax? Surely if other countries are
charging it, it must be a legitimate source of income for the
government, especially if it is going to be used to "boost tourism
infrastructure and promote travel destinations in rural Japan" and
global marketing? Well, you have to ask: "Does Japan actually need this
tax?" It seems to be doing perfectly well so far without it. If you look
at why the government is introducing the tax, there are a bunch of vague
reasons, but nothing pressing and nothing that they couldn't fund out of
the existing tax windfall from tourism spending.

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Instead, one of the main reasons Japan introduced the tax is because
other advanced countries do the same, being the USA (the ESTA fees), the
UK, and Australia (PMC). In particular, Australia is seen as being a
good model, because despite the departure tax there being jacked up to
an almost global high AUD60 (about JPY4,900) per departure, the number
of inbound travelers has nonetheless increased every year without fail
(from 6.2MM people in 2014 to 8.9MM in 2017). So, if you can squeeze
that much juice out, why not take advantage of it?

Here are three reasons why not:

1. Ignorance of macro-economics

According to an entry on Wikipedia, the International Air Transport
Association (IATA) released an economic briefing in 2013 showing the
damage Australia's departure tax does to the Australian economy.
According to IATA, if the then AUD55 charge was removed, the average
ticket price on airfares to Australia would become 3.5% cheaper, which
would increase international passenger traffic by 2.5%. This would
increase net spending by those foreign tourists by AUD1.7bn. (Duh...)
More importantly, the subsequent net benefit in income tax would exceed
the revenue lost from the departure tax!

I have no doubt that the same effect would be true for Japan, and in
fact if this new tax were based on proper economics, then where is the
credible (non-partisan) study on the issue? There isn't one, because
this is a fatuous idea by Chief Cabinet Secretary Yoshihide Suga.

2. Japan's market will be more sensitive to a departure tax

Given that such a large number of foreign tourists coming to Japan are
repeat travelers from East Asia, looking for a cheap and fun
long-weekend in Japan, I can't help feeling that the impending tax grab
here is going to start impacting this large price-sensitive market
segment. Repeat travelers (somewhere around 60% of inbound travelers)
typically use LCCs or bargain airfares from regular carriers, and help
balance out the travel numbers in the shoulder and off-seasons, thus
being important for local economies. Although there are not a lot of
alternative destinations for these people (Thailand has a JPY2,300
airport tax, but this is off-set by how cheap the place is) the next
increase in departure tax will probably start impacting the frequency
and duration of travel at the lower end of the market. This might be a
desirable filter for the Japanese hospitality industry, but will
definitely dent the overall inbound numbers (traffic and spend).

3. Bureaucratic proclivity (towards making the big grab)

Let's face it, bureaucracies exist to feed themselves, and given that
Japan's bureaucracy has a particularly high level of entitlement (thanks
to its samurai heritage), it is not hard to imagine that this departure
tax is just the beginning of the gradual strangling of the golden goose
that is inbound tourism. Australia is a great example of bureaucratic
greed. Here is a record of the increases in that country.

* 1995 - AUD27 - originally imposed to "offset the cost of customs,
immigration and quarantine processing"
* 1998 - AUD30 - increased to "offset the cost of the Sydney 2000
Olympic Games"
* 2001 - AUD38 - increased to "respond to threat of the introduction of
foot-and-mouth disease" (I'm not making this up!)
* 2008 - AUD47 - increased to "partially fund national aviation security
initiatives"
* 2012 - AUD55 - increased because "Well you don't need to know" (i.e.,
no reason provided)
* 2017 - AUD60 - increased because "Hey, we make the rules here" (i.e.,
no reason provided)

What's most concerning to me about this departure tax is that the
government doesn't really have a clear idea of what it is going to use
the money for. I've read a variety of lazy, hazy schemes so far, from
"international ad campaigns" to WiFi on every street in small towns.
Neither of these things is so important to the international traveler
that it justifies the tax. Instead, and in reality, the government
doesn't really have any idea what they are going to do with it, other
than revel in the fact that the cash dump is going to be more than twice
the current budget of the Japan Tourism Agency (JTA), and therefore has
to be a good thing. At least they could be a bit more scientific and do
a proper publicly-vetted study before jumping on the tax bandwagon.

And while we're on the subject of bureaucratic proclivity to grab the
cash, we should not forget that taxes come in many guises, and I can
easily see that the local authorities in Japan are going to jump onboard
the gravy train soon enough. Indeed, if you consider the lodging taxes
in Tokyo and Osaka, they already are. In FY2016, Tokyo made a very
healthy JPY2.5bn from that tax, and Osaka JPY1.1bn. Imagine this being
repeated around the country - which I predict it soon will be.

Here are some of the taxes that IATA has identified (and which it is
opposed to), and which are likely to arrive in Japan. I've sorted them
into categories, representing the same tax but under different names
around the world.

* Air passenger duty, Air passenger ticket levy, Air craft noise levy
* Passenger service charge, Safety & Security charge, Passenger movement
charge, Departure tax/Foreign travel tax
* Visa charges/Travel permit
* Bed tax/Bed night tax, Occupancy tax, Hotel tax, Lodging
tax/Accommodation tax
* Car rental duty, Toll charges, Registration recovery charges
* Premium location surcharge/Airport tax, Environmental management
charge, Surf tax
* Visitor attractions tax
* Value Added Tax, Goods and services tax, Wholesale sale tax, Sales tax

IATA forgot "Luxury Accommodation" (Tokyo, Osaka, Kyoto) and "Hot
Springs" taxes - which are already at work here in Japan. So, yeah, I
think you will see that there is plenty of scope for the bureaucracy to
scoop up a bunch of cash, which for sure won't be of much benefit for
travelers, but which will certainly establish handy flows of cash to
favored companies and entities that provide the services dreamed up to
spend this money.

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...The information janitors/

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